Decentralized identity as a concept has gained significant traction over the past few months, and Vitalik Buterin, co-founder of Ethereum, described Soulbound NFTs in his white paper “Decentralized Society: Finding Web3’s Soul” while describing his vision of a completely decentralised society.
Soulbound NFTs are non-transferable identification and reputation tokens. Using blockchain technology, these NFTs enable individuals to verify all of their information, including their education, employment history, credit score, medical history, and professional credentials, among others. The phrase “Soulbound” was coined in one of the most popular computer games, World of Warcraft (WOW). The game offered unique objects that could be won through combat, and only the winner could keep or utilise these items within the game.
How do SoulBound NFTs work?
Each Soulbound NFT, like all other NFTs, will have its own identification code and metadata, meaning that each Soulbound NFT will be unique and its data will be immutable. Regular NFTs can be sold or given away for free, but this one is non-transferable and permanently tied to your wallet/identity. The wallet is referred to as a Soul since it will store these soulbound NFTs as your identity or life resume.
Today, anyone can say they went to IIT or Harvard by simply updating their resume with a physical copy of a degree, which can easily be duplicated or faked. But with Soulbound NFTs, universities will have to grant/transfer some proof of diploma to your private wallet for you to effectively make that claim. Thus, practically, soulbound NFTs would be issued to students as an official digital degree to serve as a badge of their membership. Then, these proofs may be simply linked to platforms such as LinkedIn, adding an extra layer of verification to all published profiles on the network.
Like the badges you earn for completing a course of study from a reputed institute, winning a university creative competition or a sports event, or even completing tasks and going up levels in a video game, Soulbound NFTs can serve as virtual representations of each of your accomplishments. Your corresponding Soulbound NFT would serve as a way of verifying that achievement to others.
But Soulbound NFTs are not only about achievements. They can be linked to various characteristics, features and information personal to specific individuals. A Soulbound NFT could be used, for instance, to verify your political affiliations, interests, identity, citizenship, birthday, charitable giving, medical history and a lot more. The opportunities are, quite literally, limitless. To summarise, Soulbound tokens are all your personal and professional data broken down into individual NFTs and saved in a verifiable format in your blockchain wallet.
Web3 Ecosystem – SoulBound NFTs
Soulbound NFTs can assist in resolving inefficiencies in Web3, such as reducing scams and hacks and propagating many use cases in DeFi and the metaverse. In addition, the reputation of an NFT artist or project’s founder in the community has a significant impact on the level of trust it receives from customers or investors. Through these NFTs, consumers can learn about the project’s and team’s value and rate a project based on its actual value.
Instead of having to go through the processes setup by centralized organizations to establish our identity, blockchain provides us the chance to do it on our own terms. The most significant difference in the decentralised identity revolution is that users no longer require online identity providers to own their digital personas. These NFTs may also serve as useful information for venture capitalists and other investors to judge the actual strength of the founder and the team based on their NFT-proven track record, as well as contribute to the monetary and strategic worth of protocols, so fostering mutual progress.
One of our portfolio company – Itheum is working on a similar model. The NFMe ID avatars launched by Itheum, are in the form of Soulbound NFTs that represent the individual in the metaverse. Users can’t trade away their NFMe ID, but can lease their personal data assets within the metaverse. Think of it as an authorization key to user data.
Challenges with SoulBound NFTs
Every new technological development and innovation faces roadblocks of varied kinds. So does the whole concept of Soulbound NFTs but the current setup does try to resolve some of the obvious ones for the users. Due to the non-transferable nature of Soulbound NFTs, there may be cases where you may be sent a Soulbound NFT that you did not associate with or subscribe to in any way. This might result in confusion and misrepresentation of identity. One of the solution to this problem could be that a person can choose to make certain Soulbound NFTs visible and, if necessary, burn those with which he does not wish to be linked. Another issue we are seeing right now is the recovery process, which could be quite difficult with Soulbound NFTs. What happens if the individual misplaces the wallet’s keys? In this instance, researchers have proposed social recovery strategies, such as sharing your wallet with a select few guardians and making them responsible for assisting you in recovering your key. This solution may have its own set of challenges: what if the group turns against the person, or what if the people with whom you associate no longer share that relationship with you? So a clear answer to this problem remains a mystery, but we are optimistic that the brightest minds in web3 will find one soon.
Soulbond NFTs may play a crucial role in building a robust ecosystem of data verifiability by using blockchain technology. They open multiple avenues for establishing identity and credibility of individuals, teams, projects, DAOs etc and aiding the ethos of decentralization, security and scalability of the blockchain trilemma. They help in building a network where a lot of our past records can be converted into securitized digital identities through non-transferable NFTs. We are very early and it is just the beginning of these type of NFTs. A number of roadblocks are there in making these NFTs a full fledged reality but considering the work being done in the web3, this success may not be too far from reality. Will Soulbound NFTs and tokens override the existing NFT ecosystem or will both coexist? The need for both is different and time will tell how each evovles in the roadmap.
WOODSTOCK IN THE NEWS
- Himanshu Yadav, General Partner, was a speaker at the World Blockchain Summit at Atlantis Dubai and shared his views on investing in digital assets and how is the Web 3.0 landscape evolving.
- Covalent, one of our top portfolio companies, got covered by Messari. Covalent offers a Unified API that allows developers to reuse queries across multiple blockchains. As of October 2022, Covalent supports 26 blockchain mainnets and plans to support over 50 by 2023.
- We conducted a Web3 meet up in New York city. It was great to have free flowing discussions around investment potential in digital assets, our investment thesis, and to hear from brilliant builders envisioning the future of Web 3.0.
- We conducted our Masterclass #3 on “Understanding the Basics of Web3 Stack” which was hosted by Abhinav Pathak, Research Partner at Woodstock – Watch the recording of the session here.
- In the month of November, Woodstock will be attending and speaking at YourStory TechSparks, IGDC Hyderabad and Web3 Miami and Abu Dabhi Finance Week.
- Hong Kong Plans to Legalize Retail Crypto Trading to Become Hub. Hong Kong is pivoting toward a friendlier regulatory regime for cryptocurrencies with a plan to legalize retail trading, contrasting with the city’s skeptical stance of recent years and the ban in place in mainland China.
- Google Cloud announces blockchain node service starting with Ethereum. Google Cloud is opening up a blockchain node engine that will streamline the process of setting up a brand new node, as well as the complications of hosting it on your own hardware.
- MAS proposes measures to reduce risks to consumers from cryptocurrency trading and enhance standards of stablecoin-related activities
- Tech giant Apple now allows NFTs to be bought and sold through applications listed on its App Store. But Apple will take 30% commission from NFTs sold as in-app purchases.
- Near Protocol’s USN Stablecoin Shut Down After Suffering $40M ‘Collateral Gap’